Defining credible benchmarks for outside counsel spend

What have you done for me lately? For many law departments this feels like the unspoken question from the business. Legal departments are required not only to manage legal obligations and risk but to do so in an efficient and fiscally responsible way. This trend was initiated by the recession but has become the standard approach.

To demonstrate the best value for the work done by the legal departments requires a look into an organization’s legal spend data. Understanding and analyzing the data will validate the accomplishments and financial investments to the business leads.

The value of an organization’s legal spend can be illustrated through benchmark reports. Key points to consider when developing reports include:

Segmentation: What insights should these reports illustrate? Practice area trends, litigation trends, law firm management, etc.?

Audience: Who are these reports serving? The office of the CFO? Attorneys with the legal department and supporting law firms?

Purpose: How should the intended recipients use the benchmarking information?

Credible benchmarks emerge when you capture and analyze data in an objective way. Once analyzed it becomes actionable, in that you can make informed decisions on both your performance and your outside counsels. Keep in mind benchmarks are a comparative tool. They can be used to compare past performance of a specific group or law firm against itself or to compare groups against one another.

The ability to hold outside counsel accountable for its financial results is imperative to demonstrate the value senior management demands. To define a credible benchmark here you need to identify key performance indicators (KPIs) that include Legal spend year- over-year, compliance to budget and average whole case cost for select sets of like matters.

Keeping outside counsel in check to ensure your funds are being used efficiently on right task and activities can be a challenge. Here credible benchmarks can emerge in the everyday details of the legal invoice. Uniform Task Based Management System (UTBMS) codes indicate phase, task and activity information. Looking at the codes can help corporation law departments manage what work is—andis not—performed on matters, how often, how long and at what cost.

The idea of validating whether resources are used in an efficient and effective manner can be daunting, especially when your firm count is exceptionally large. However invoice details can again provide key data. You can analyze who is charging for legal tasks along with those individuals’ ranks (partner, associate, etc.) within the law firm. This data reveals who is managing what individuals or the professional level of individuals performing the selected tasks for your company. Additional drill down can reveal the time taken with a case, the frequency of occurrence and the cost.

It is important to remember, the mirror must also turn inward as well when examining outside counsel’s performance. The process by which your legal team reviews invoices can impact the bottom line.

How fast are invoices reviewed upon receipt? How often are invoices rejected for grossly improper billing? What is your fee adjustment rate when the review is complete? Analyzing data like this can validate or illuminate areas of improvement to save money.

A third-party provider can help you create the reports that matter most for you and your firm, and can help you compare performance against a credible benchmark, which allows you to place a stake in the ground and provide the context to understand if you are making progress or not. The quality of your data and the team generating an actionable data analysis will determine how successfully you will be when answering the question, “what have you done for me lately?”

Contributing Author

Craig Raeburn

Craig Raeburn, Jr. is the Managing Director of TyMetrix Legal Analytics. He is responsible for delivering products and solutions to the legal marketplace that...